Eight types of funding for your business

Funding is a major hurdle that companies come across. To avoid this you need to know about the various funding options available. Read to know more.
  • BY Sanjana Surbhi

    Feature Writer, BusinessEx

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  • May 19,2018
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  • 15 Mins Read

India stands third when it comes to start-up. Over 4,400 technology start-ups exist in India and the number is expected to reach over to 12,000 by 2020, Inc42 reported. Job creation is a major problem in India. To overcome that Government of India has taken initiatives to encourage entrepreneurship. Some of them are, Make in India launched in the year 2014, Start-Up India, Digital India (to modernize the Indian economy), Stand-up India and few others. But there are many obstacles that a budding entrepreneur has to face. One of them is funding.

What is Funding?

Funding is a significant step, where you will be getting financial resources in the form of money or in other values by some company or organisation. To start any business you need to have financial support. There are so many funding options out there; it can be confusing for a newbie to select the best option for them. So here we have listed out eight funding options, have a look

Crowdfunding:

Crowdfunding is a new way of raising capitals by using social media platforms like Facebook, Twitter, LinkedIn, and others. The new generation considers this platform to pitch their ideas directly by using the internet to a large number of people. You can gather crowdfunding from your family, friends and some entrepreneurs. Crowdfunding not only provides you finance but it also helps in promoting your product. But do keep in mind it is a competitive stage so you must offer something unique and different.

Self-funding/Bootstrapping

Funding can be one of biggest challenges you might face while starting up a business. So, some entrepreneurs choose to self-fund their businesses and invest their own money at the starting stage. This is also known as bootstrapping. This will be easy to raise as there will be very few or no formalities and the cost of raising will also be less. Bootstrapping will allow you to have complete control over your business without sharing ownership with any investors. To self-fund your business you need to about finance management otherwise this might lead you in some serious trouble.

Angel Investor

Angel investors are individuals who generally invest in the start-up companies in exchange for an equity ownership interest. They have helped many start-up companies like Google, Flipkart, and Yahoo. They can offer you valuable advice as they have already worked in this industry. They take more risk in investment for higher returns but they have a disadvantage too. They will invest less and try to find someone who is from your industry. Keep in mind that to get an angel investment, you need to have connections. 

Venture Capital

Venture capitalists invest only when start-ups start generating revenues. They are ready to put a large amount of money if convinced by the business idea. VCs provide expertise and mentorship and they have vast knowledge about the industry. This type of funding might open the door to a wide network of important individuals which can make a difference in the growth span of the business. The downside of this investment is, if your product is taking too much time to get started then they might lose their interest and they often recover their investment within three to five years span.

Bank Loans

Bank provides funding to thousands of start-ups each year. It is also one of the funding options for start-ups. But before you go to the bank make sure you are aware of all the schemes. Banks provide two kinds of finances for start-ups, one is a capital loan and the other is funding. They work just like investors. They will ask about your business plan and future aspect of your plan. In this type of funding, you don't need to give up control of your business but it requires a lot of documentation and you have to pay the money whether your business succeeds or not. 

Government Start-up Funds

To boost the Indian start-up ecosystem, the government has introduced more than 50 schemes over the past few years. You just need to submit your business plan and once approved your loan will get sanctioned. If you qualify the eligibility criteria then, it could be one of the best funding options. Be aware of all the government initiatives regarding start-ups plan. 

Small Business Administration loans

If you want to have complete control over your business then tries small business administration loans. They work with moneylenders to provide loans to small businesses. In this funding option, you need to have a business plan, balance sheet and future projections of about 5 years. This will help the bank to know your start-up better and later they can sanction the loan. They are difficult to qualify but their interest rates are low. 

Personal Investors

You can always look out for friends and family to help to fund your business. They can be the most reliable source of funding. They know you and trust you so this can be one of the fastest funding options for you. But keep it in a professional way and do not mix your professional and personal works. 

Every business needs to have a proper plan before it comes into the market. With so many funding options, you can easily get started but every funding has its own advantages and disadvantages. So, you have to decide which kind of funding you want. 

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